# How the Federal Reserve Impacts Mortgage Rates and Influences the Rate of Inflation
- Link: https://jackschobergrealestate.com/how-the-federal-reserve-uses-mortgage-interest-rates-to-manipulate-and-influence-inflation/
- Published: 2023-08-25T21:29:38-07:00
- Author: Jack Schoberg
## How the Federal Reserve Impacts Mortgage Rates and Influences the Rate of Inflation
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When you read about the housing market in the news, you might see something about
a recent decision made by the _Federal Reserve_ (the Fed). You may be wondering
how the Federal Reserve impacts mortgage rates and what this means for you. But
how does this decision affect you and your plans to buy a home? Here’s what you
need to know. In short, understanding how the Federal Reserve impacts mortgage rates
is key to making informed decisions in today’s market.
The Fed_ _is trying hard to reduce inflation. And even though there have been 12
straight months where inflation has cooled, the most recent [data](https://www.bls.gov/news.release/cpi.nr0.htm)
shows it’s still higher than the Fed’s target of 2%: 
While you may have been hoping the Fed would stop its hikes since they’re making
progress on their goal of bringing down inflation, they don’t want to stop too soon
and risk inflation climbing back up as a result. Because of this, the Fed decided
to increase the Federal Funds Rate again last week.
### As Jerome Powell, Chairman of the_ _Fed_,_ 󠀁[says](https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20230726.pdf)󠁿:
_“_**_We remain committed to bringing inflation back to our 2 percent goal_**_ and
to keeping longer-term inflation expectations well anchored.”_
Greg McBride, Senior VP and Chief Financial Analyst at _Bankrate_, [explains](https://www.nbcnews.com/business/economy/interest-rate-hike-july-2023-how-much-higher-federal-reserve-rcna96210)
how high inflation and a strong economy play into the Fed’s recent decision:
_“_**_Inflation remains stubbornly high._**_ The economy has been remarkably resilient,
and the labor market is still robust, but that may be contributing to the stubbornly
high inflation. _**_So, Fed has to pump the brakes a bit more_**_.”_
Even though a Federal Fund Rate hike by the Fed doesn’t directly dictate what happens
with mortgage interest rates, it does have an impact. When considering how the Federal
Reserve impacts mortgage rates, these decisions provide essential context.
_“The federal funds rate is an interest rate that banks charge other banks when
they lend one another money . . . _**_When inflation is running high, the Fed will
increase rates to increase the cost of borrowing and slow down the economy. _**_When
it’s too low, they’ll lower rates to stimulate the economy and get things moving
again.”_
### **So the Federal Reserve Impacts Mortgage Rates, but Does This Affect You**?
In the simplest sense, when inflation is high, [mortgage interest rates](https://www.simplifyingthemarket.com/en/2023/07/19/explaining-todays-mortgage-rates/?a=1000002630-aafba96123adc25eb8f26f25cf165ca6)
are also high. But if the Fed succeeds in bringing down inflation, it could ultimately
lead to lower mortgage interest rates, making it more affordable for you to buy
a home. It’s important to remember how the Federal Reserve impacts mortgage rates
during periods of market change.
This graph helps illustrate that point by showing that when [inflation](https://www.bls.gov/cpi/)
decreases, [mortgage interest rates](https://www.freddiemac.com/pmms/archive) typically
go down, too (_see graph below_): 
As the data above shows, inflation (_shown in_ _the blue trend line_) is slowly
coming down and, based on historical trends, mortgage rates (_shown in_ _the green
trend line_) are [likely to follow](https://www.simplifyingthemarket.com/en/2023/07/05/two-questions-to-ask-yourself-if-youre-considering-buying-a-home/?a=1000002630-aafba96123adc25eb8f26f25cf165ca6).
McBride [says](https://www.cnet.com/personal-finance/mortgages/mortgage-refinance-rates-for-july-26-2023-rates-advance/)
this about the future of mortgage rates:
_“With the backdrop of easing inflation pressures, _**_we should see more consistent
declines in mortgage interest rates as the year progresses_**_, particularly if
the economy and labor market slow noticeably.”_
### Bottom Line
What happens to mortgage rates depends on inflation. If inflation cools down, mortgage
rates should go down, too. Additionally, keep in mind how the Federal Reserve impacts
mortgage rates when considering your financial strategy. Let’s talk so you can get
expert advice on housing market changes and what they mean for you.
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